Starbucks opened its 6,000 stores in mainland China in September 2022.
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BEIJING – Chinese consumer spending is not likely to return to pre-coronavirus levels anytime soon, a concern for international brands like Starbucks, Morgan Stanley said in a report on Sunday.
Not only are people more cautious, but they now have more choices.
On the spending side, three factors are weighing on Chinese consumers this year, Morgan Stanley analysts said.
First, China has not handed out stimulus checks to consumers like the US and other parts of the world have done in the wake of Covid.
Second, pandemic restrictions and regulatory changes have wiped out 30 million service sector jobs that would have existed before Covid, analysts estimate.
About 20 million of those jobs are likely to return later this year and next, the report said. However, analysts expect the remaining 10 million will take longer to recover as they have been hit by Beijing’s crackdown on education, internet technology and property.
Third, the housing market has remained persistently weak due to government efforts to curb speculation.
Previously, in the first half of 2021, real estate sales had led the recovery, analysts at Morgan Stanley emphasized.
Covid-19 and the measures taken to combat it in 2020-2022 have taken a toll on China’s economy. Growth has recovered only marginally since these restrictions ended abruptly in December.
After an expected 9% rebound in Chinese consumer spending this year, analysts at Morgan Stanley are forecasting a 4.8% increase next year — 0.5 percentage points lower than before the pandemic.
For Starbucks, analysts expect the industry metric, same-store sales in China, to grow about 7% this year. That’s still “about in the low teens” compared to 2019 levels, the report said.
The local market is becoming more difficult
Increasing local competition is also making it difficult for international brands.
In fact, the US-based coffee giant is “least likely to fuel China’s recovery” for Morgan Stanley analysts’ stock picks for US “restaurants.”
In April, China saw a 16% year-over-year increase in the number of coffee shops — mostly local brands, according to the Morgan Stanley report. “As a result, multinationals like SBUX have lost market share (although branches are still growing at a robust pace).”
“The brand has more competition from relatively young but fast-growing concepts like Luckin, Cotti and Tim Hortons.”
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Tim Horton’s Parents vs. Starbucks
According to the companies, China-based Luckin Coffee now has more than 9,000 stores, while Tim Hortons has more than 600 locations after launching in 2019. The new Cotti Coffee brand is so popular that its website warns people trying to impersonate the brand.
Starbucks opened its 6,000th store in mainland China in September 2022.
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